Ask Question
2 December, 05:28

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the price of tea, a substitute for coffee, decreases, and due to better weather, the price of coffee beans also decreases. Equilibrium price Equilibrium quantity

+2
Answers (1)
  1. 2 December, 05:57
    0
    Equilibrium price = Decreases

    Equilibrium quantity = Indeterminate

    Explanation:

    Here, we suppose that tea and coffee are substitute goods and we know that substitute goods have a positive cross price elasticity of demand.

    So, if there is a fall in the price of tea then as a result the demand for coffee decreases which shifts the demand curve of coffee leftwards.

    And, there is a fall in the price of coffee beans due to the better weather condition and coffee beans are used as an ingredient for producing coffee.

    Hence, there is a fall in the cost of production of coffee which increases the supply of coffee and shifts the supply curve of coffee rightwards.

    Therefore, there is a fall in the equilibrium price level of coffee and the effect of these shifts on the equilibrium quantity is indeterminate because that will be dependent upon the magnitude of the shifts of both the curves.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the price of tea, a substitute for coffee, ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers